Playing the budget

For me a budget day is no different day than any other day. It is just that news channels and newspapers have more “masala” to report about.

I am observing some moves in infrastructure plays like L&T and BHEL.May be market is anticipating a rise in infrastructure spending! The major reason for under performance of these stocks was the launch of many “infra” based funds in the past 2-3 months!When the whole markets begins to chase a particular theme, somehow the returns doe down. Sometimes I wonder how the majority opinion often goes wrong in the markets. Do you remember how bankings sector was the favourite of fund managers at the beginning of the year and metals was one the least favoured sector?I have been bullish on commodities for quite a while and continue to be so. Keep a watch on the likes of SAIL,Tata Steel and Sterlite. Also don’t yet discount RPL and RIL.

The market is still trading in a range with an upward bias.The budget might provide some positive trigger but till we take out 5400 on the NIFTY, it is better to exit your longs on every rise.

So don’t listen to what the FM says but try to observe the reaction of markets to the budget. Always remember that in bullish times bad news are ignored while in bearish times good news are ignored.

Where is this market headed?

This market is actually heading nowhere. It is strictly trading in a range of 5050 to 5350-5400. Large commitments are still absent. It might be because of a big event like “budget”.

So how should one play this market? Simple- Go long around 5050 levels and sell out or go short around 5400 levels . So far it is working out perfectly. Even stocks are moving in specified ranges. Take suzlon for example- the stock is trading between a range of 295-345. I have myself traded the stock couple of times in this range.

So what does a range tell us? It tells us that it is a “wait and watch” situation for most of the market players. If we break out of this range on the upside, we might see 5800-6000 on the index. At the same time if we break on the lower side,we can see 4500 again.

At the same time, I’d put the probability of this market moving higher than lower as 60/40. This is primarily on the basis of “fear/gloom” surrounding us.

These are good times for short term traders and challenging times for “buy and hold” investor. Thats why one needs to adapt the style according to market conditions.

Market Outlook

Yesterday’s market was again choppy with huge bouts of buying and selling.It is evident that people don’t wish to hold overnight positions and are just indulging in intraday trading.

On top of that next week is derivatives expiry and budget day. This is only adding to the uncertainity in the minds of the participants.

These times are going to test the patience of the investors to the core. So the best strategy might be to wait for the more favourable conditions to emerge again.

Of course, if you are an intraday trader you might have quite a few opportunities. Even intraday becomes difficult at times because buying and selling is so compressed-the whole action happens in less than 5 minutes.

Technically, 5100 remains a critical support on NIFTY.

The downtrend resumes again

Today’s market action has confirmed the fact that we are again on a downhill path. I am not too sure where it will settle but it is very much possible that we retest the earlier lows of 4500.

Budget or no budget, this market is not looking pretty on the long side. I can’t find many stocks which are showing any strength. Every rise is met with selling!

One should be prepared for the worst in the coming days. Money is moving from equities to commodities- see how Gold, Metals, Oil, Wheat are firming up.Read this story on bloomberg. The bull run in commodities might have just begun-especially the agri-commodities.

People are short on equities and long on commodities.The world is entering a phase of “slow growth and high inflation”. This also implies that RBI is not going to cut interest rates anytime soon which in turn might slow down the industrial growth.
As an individual investor-this might be an appropriate time to rethink about your asset allocation.And be careful before you buy a falling stock. Some stocks never recover.

Reliance power- Is it a long term hold?

A lot of people are asking about Reliance Power- Hold it, buy it or sell it?

Now there is no definitive answer to this question but one thing all of us have to understand is that Reliance Power is a speculative investment. Stocks/Companies with no earnings are vehicles of speculations by the momentum players(operators, hedge funds,trend traders etc.) in the markets. Since fundamental guys can’t “value” these stocks(there are no earnings!), any price can be justified for them! These stocks can command 400+ forward PEs in good times and may be a forward PE of 10 during bad times. So Reliance power shall only move on the basis of announcements, news, deals etc rather than any actual value creation. This is something similar to 1999-2000 when dot com companies had no earnings but moved on “future potential”.

Considering this, I feel that the best way to make money on such a stock might be to do short term trading on the stock. If you do a “buy and hold” on the stock, there is a significant risk that the stock actually trades at much much lower levels in the longer run!

The promoters and investment bankers do a good job of selling their issue at high prices using all the media blitz but it is the public which gets sucked into the system impressed by the tall claims of the management. Unfortunately we spend so much time researching on that next TV or laptop we want to buy but never put enough time into researching our investment ideas. All we focus on is making “easy money”.

Coming back to the category of speculative stocks, RPL- another stock in the same category,might be getting closer to having actual operations this year and we might witness less speculation in the counter after that.

So its important to be clear in your head if you want to “trade” a stock or adopt a “buy and hold” strategy.

Are we out of a downtrend?

Markets are playing real tricks these days. Just when people expected 4500, it bounced back to climb 5200 levels!

Does this mean that one should aggressively start buying? I’d still be cautious and use this rally just to trade a few stocks. There is a very high probability that this rally actually materializes into the NIFTY getting back into the bullish zone. But till we get past the 5500 levels, this might still be a pullback in a downtrend.

We are moving in tandem with global markets.The global situation is still uncertain with some early signs of credit problems spilling over from housing to other sectors(like auto). Read this stuff from Wall Street Journal.

I have also heard some rumblings that IT majors like Infosys and TCS are seeing some slowdown in their US business and might announce some job cuts!

So this a time to play good defence rather than any offence. Remember this is a test match rather than a 20-20 tournament!

Market Outlook

Yesterday’s fall was not very surprising but quantum of the fall was little surprising. This market is vacillating between excessive “greed’ and “fear”.

Right now- the FIIs are selling, short term traders are absent and retail is adopting a wait and watch strategy.The DIIs who were buying earlier have also slowed down  after seeing a slowdown in GDP numbers. In nutshell the market is devoid of aggressive buyers.

This is the reason why market is not finding support even at lower levels. Infact it is surprising to observe how NIFTY cracks 2-3% in a matter of few minutes. Till buyers emerge, it might be difficult for these markets to trend up. As of now,we are still not witnessing buying at lower levels.

The best bet in these conditions might be to do some short term trading and try to scalp some money out of the system.

Reliance Power IPO- The lessons to be learnt

Today is a big day of learning for many investors. The biggest IPO in Indian stock market history has faltered and people have again managed to lose money on a “Reliance name”.

Only promoters and investment bankers have been able to make money on this one. On top of it, the downtrend in the stock might have just started. I won’t be surprised to see further falls as many investors might be holding the stock in hope of a recovery!

There is an old adage in the world of investing.Following the crowd never fetches returns -even if the crowd consists of well informed “sophisticated FIIs “.

We often consider these FIIs to be more intelligent than an average investor but today’s event shows that ultimately it boils down to your own judgment-it doesn’t matter if you invest $1 billion or 1000 rupees in the market! Names and reputations don’t matter here. The market shall reward good decisions while punishing the bad ones.

Coming to markets- we are in a deep downtrend. It is very difficult to say as to how long will it take for us to get out of this downtrend. It is also difficult to say whether we will go to 4500 or 4000 or even lower.Just like Sept to Dec was the time to play the uptrend, this is a good time to play the downtrend.

The markets are falling more because of “lack of buying” and bears have taken full control. Its all about “sentiment” and right now it is bearish.

It is always better to trade according to what you “see” rather than what you “feel” or “believe”.

Strategy for volatile times

NIFTY fell of the cliff today falling 300 points from the top-thats more than 5%. Such moves have become common these days and is increasing the risk aversion of investors and traders.

So what can one do in these difficult times?

For most investors, the best option might be sit out this rough period without increasing your equity exposure. This requires lots of patience and an ability to withstand lot of gyrations in your portfolio.

Another option could be keep your portfolio holdings intact and do some short term trading in the same stocks to reduce the average cost of your holding. Of course this strategy might not work if you are holding all the bad stocks!

Another strategy might is to conserve your cash,deploy it on crashes and then get out with small 5-10% profits.

Only day trading systems are consistently making money in these volatile times. These are difficult times for everyone else.

So need of the hour is to keep a low risk profile and be patient.

And be prepared for more bad news from the US. People are still guessing whether it is more like 1998 or 2001 in the US!

Till date $150 billion has been lost in the subprime. But one needs to remember that almost $500 trillion is present in the credit derivative world. And the biggest problem is that credit market has lost liquidity, so banks are stuck with their positions. It is like being stuck in “circuit down” stock! My guess is that some FIIs are selling emerging market positions to generate some cash on their books.

Till the housing crash in the US begins to stabilize, it is very difficult to say as to what will bring  the “next storm”.

Markets consolidate at 5500

It is evident from the volume action that speculative action is missing although some momentum was seen in the old favourites like IFCI, RPL and RNRL. NIFTY is slowly moving in the 5450-5500 range with intraday volatility coming down. The volume action might not encourage the bulls but such low volatility is surely good for an uptrend to sustain itself. This shall slowly bring buyers back into the market.

Right now it is very difficult to say if the correction is over or this is just a pullback rally in a downtrend.We might need couple of more trading sessions to know if the markets are out of the woods. Of course this means some help from the global markets as any bad news has the potential to derail this move.

On the global front,the US Fed is trying his best to save the US economy but it remains to be seen the impact of the rate cuts. Americans are losing wealth at a pace faster than they can think- first the falling house prices and now the falling stock markets. Banks have lost $150 billion in the subprime crisis and people say that worst is still to come! I was reading somewhere that number of short sells on Dow is at its highest since 1931 (the time of great depression).

So what is the best way to make money in this market?

The best might be to “stay away”. For aggressive guys, I feel the best strategy is to trade short term and try to skim off some profits in the large cap stocks. Buying into midcaps/smallcaps is fraught with high risks as markets might still find them “expensive”!So the probability of a rebound might be less than that in the large caps.That is the most interesting part of this game-when a stock is going up people don’t find a stock with 100 P/E to be expensive but when the same stock comes down and trades at say 50 P/E, people its way too expensive! Thats greed and fear for you.

Are we ready to trend up?

These days investors are actually realizing the futility of predicting markets. As always,it is moving against the expectation of the majority.

Today was a good day with NIFTY closing above 5300. I know the sceptics might term today’s move as the one with “low volume” but all upmoves start like that. So I’d say that today’s move was encouraging for the bulls.

The short term trend is clearly pointing upwards while the medium trend is still down. So an aggressive trader shall start buying now so as to be able to capture the most of this move whereas a conservative investor might enter after 5700 gets crossed.

Does this mean that all the risks have suddenly vanished? Not at all but investing is all about taking measured risks.Sometimes you win while sometimes you lose. At the same time markets are forming a base between 5000-5050 levels.

What I find encouraging is the “extreme pessimism” in the media about the state of the markets. This kind of things happen when markets are hit by “unexpected events”,similar to the ones Indian markets experienced last week. And now everybody is expecting another “big fall” and is scared. Usually lightening strikes when no one is prepared for it and not when everyone is expecting it and well prepared for it.

So who knows that we see new highs on markets by the end of this month? I for sure don’t know that but I am also sure that many of the market commentators who claim to know that actually “don’t know” that.

So the best strategy might be to follow the trend and stick to quality. This might be a good time to clean any junk in your portfolios. Some of stocks we hold might never recover from this crash, so it might be a prudent strategy to get rid of them and be in cash.